Europe's investment banks turned in a surprisingly good second-quarter performance, particularly in the closely watched fixed income trading arena. But although they have regained some of the market share they lost to US rivals in recent years, this doesn't yet look like a sustainable turnaround.

US banks had set a weak tone. JP Morgan Chase's 17% drop in revenues from fixed income, currencies and commodities trading led US banks' average decline of 9% in the second quarter versus the same period last year. This created expectations of lacklustre results in Europe.

However, Deutsche Bank —the most global of Europe's investment banks—reported flat revenues and others followed with revenue gains. BNP Paribas turned in a 22% top-line increase. On average, nine European banks saw fixed income trading revenue grow 2.5%, according to Nomura. Stripping out big declines at Royal Bank of Scotland and Barclays, which took decisions later than peers to exit big chunks of these markets, European banks posted an average rise of 9%.

The results went against the script of falling volatility, less investor trading and low interest rates suppressing sales and margins. Overall, European banks regained two percentage points of global market share in fixed income trading from US banks after three consecutive years of losses, according to Citigroup. European banks now have 47% of the global market excluding Citi's own business.

But behind the positive numbers are a few oddities. First, the second quarter of last year was particularly poor for Europeans in general and the French in particular—hence BNP's stellar improvement this time. US fixed income trading revenues rose 12% on average in the second quarter of 2013, according to Nomura, while European banks' top lines shrunk by an average of 13%.

Second, this year saw a flood of new European bond issues, which helped promote secondary trading as investors shuffled portfolios. Europe had its best-ever first half for high yield deals and its best first half in three years in investment grade debt, according to Dealogic. In subordinated capital bonds for banks and insurers, Europe did more than 1½ times the volume of the rest of the world.

That is part of a continuing shift in European corporate fundraising, from a heavy reliance on bank balance sheets to more direct capital markets activity. But this has been playing out in slow motion since the creation of the euro at the end of the last millennium. A record half doesn't presage a quantum leap forward.

Related

Also, those tailwinds have dropped off in the third quarter. Corporate bond issuance was down 14% year over year in July, while volatility in currencies and European rates has been further damped.

For Deutsche Bank, the last European determined to challenge on the global stage, market share gains in the half have put its fixed income trading business on an equal global leadership footing with JP Morgan, according to Citigroup. But that came with an increase in balance sheet leverage at the German bank, which must reverse.

Elsewhere in Europe, the decent trading results at best suggest that banks that are stripping back to niche strategies—like BNP Paribas, Credit Suisse and UBS —have made viable choices, according to Deutsche Bank's analysts.

European banks have stabilised their trading businesses. But it is too soon to get excited about a real recovery.